Overseas Investment Funds Outshine Domestic Products in 2016

(Beijing) — Mutual funds established for overseas investment through the Qualified Domestic Institutional Investor (QDII) program emerged as the most profitable such products last year as the majority of funds in China posted net losses.

More than 1,800 out of the 3,277 mutual funds offered by Chinese fund management companies reported a loss in 2016, according to Wind Info, a financial data provider. A fund product from Ping An-UOB Fund Management Company Ltd., a subsidiary of Ping An Insurance (Group) Company of China Ltd., was the worst performer, with a 42.49% loss. The other two products offered by the company were also among the 10 worst-performing funds.

Funds issued under the QDII program, which permits Chinese investors to buy securities overseas through licensed financial institutions, were the best performers among all types of mutual funds last year, posting an average total return of 6.56%. A fund offered by Bank of China’s investment management arm led the pack with a 49.48% annual return.

Amid volatile domestic markets, low money-market rates and expectations of further yuan depreciation, QDIIs has taken off as many investors have scrambled to diversify their portfolios into overseas assets.

“The popularity of QDII funds is mainly caused by investors who are concerned that the yuan will continue to depreciate and thus want to diversify their investments,” said a mutual fund researcher. The returns on QDII funds “also benefited from the good performance of overseas markets,” he added.

However, data from the State Administration of Foreign Exchange (SAFE) show that no new quotas have been allocated to financial institutions since 2015, part of regulatory efforts to stem capital outflows, which are putting depreciating pressure on the yuan. Since the program was launched in 2006, a total of $90 billion in quotas has been granted to 132 qualified institutions.

There are a total of 123 QDII funds, which together account for 1.07% of the market, according to Wind Info.

Contact reporter Chen Na (nachen@caixin.com)